The Indian auto industry has been recording tremendous growth over the years and has emerged as a major contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of our GDP and employs about 19 million people both directly and indirectly.
The automotive industry occupies a significant place in the Indian economy. India is emerging as a global hub for auto component sourcing and is set to break into the league of the top five vehicle producing nations worldwide. The country is also emerging as a sourcing hub for engine components. The Indian auto component sector covers a wide range of industries, including engine parts, drive transmission and steering parts, body and chassis, suspension and braking parts, equipment and electrical parts, besides others.
The ever-increasing development in infrastructure, huge domestic market, increasing purchasing power and stable government framework have made India a favourable destination for investment, as per the vision of Automotive Mission Plan (AMP) 2006–2016.
The Indian auto component industry is estimated to have a US$ 66 billion turnover by 2015–16 and is expected to grow at a 14 per cent compound annual growth rate (CAGR) by 2013–2021, according to Automotive Component Manufacturers’ Association of India (ACMA) – the nodal agency for the Indian auto component industry. In addition, industry exports are estimated to reach US$ 12 billion by 2015–16.
The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 to January 2014 was recorded at US$ 9,344 million, as per data published by Department of Industrial Policy and Promotion (DIPP), Government of India.
According to data released by the Society of Indian Automobile Manufacturers (SIAM), the domestic sales of automobiles during 2013–14 grew by 3.53 per cent over the same period last year. The automobile exports grew 7.21 per cent during the fiscal.
India has become a research and development (R&D) hotbed and in keeping with the global R&D trend of last year, the country is now a preferred destination for automotive R&D, according to a study on the Global Top 500 R&D spenders done by Zinnov. India's position is highlighted by the fact that 874 MNCs have set up 1,031 centres and 45 per cent of the top 500 global R&D spenders have a presence here.
Furthermore, India is fast becoming a major procurement centre for Yamaha Motor for its global operations. “We are supplying around 125-130 parts from around 37 companies in India to Yamaha’s global facilities including Indonesia, Vietnam and Thailand. In the next 3-4 years, we plan to supply around 300-400 parts and double the number of vendors from India,” as per Mr Sanjiv Paul, Group Head – Purchase Operations, India Yamaha Motor (IYM).
The Government of India allows 100 per cent FDI in the automotive industry through automatic route. With a special focus on exports of small cars, multi-utility vehicles (MUVs), two and three wheelers and auto components, the automotive sector’s contribution to the GDP is expected to double reaching a turnover worth US$ 145 billion in 2016, according to the AMP 2006–2016.
The Interim Budget 2014–15 added some incentives to the auto industry. To give relief to the automobile industry the excise duty has been reduced till June 30, 2014 as follows:
The rapidly globalising world is opening new dimensions for the transportation industry, generating need for more efficient, safe and reliable modes of transportation.
Cars will become ‘smart devices on wheels’, so much so that the car will become an extension of your smartphone or vice versa. Today, several companies – including Google and Apple – are working on connected vehicles. By 2020, the industry estimates that nearly 90 per cent of vehicles on the road will be wired, while the connected car market will hit US$ 600 billion – making it the single largest market for connected devices and services. Experts predict that in future most of the additions to a car will be digital features rather than physical.
Exchange Rate Used: INR 1 = US$ 0.01626 as on April 13, 2014
References: Media Reports, Department of Industrial Policy and Promotion (DIPP), Automotive Component Manufacturers Association of India (ACMA), Union Budget 2014-15